QUALITY OF GOVERNANCE AND THE CONSTRUCTION OF GOVERNANCE INDICES: EVIDENCE FROM SPAIN

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Abstract

Corporate governance is a set of mechanisms relevant to economic efficiency since it can minimize agency problems. The question is to determine how governance and firm performance interact. Recent research shows that firm-level corporate governance mechanisms are more important in countries with low investor protection, suggesting that firms can partially compensate for ineffective legal environments. Within this context, the objective of this paper is to construct a robust proxy for quality of corporate governance for the Spanish public companies. Thus, after providing an extensive literature review on the field of corporate governance and its interaction with firm performance, we construct a governance index (GOV-I) for a sample of 97 Spanish non-financial public companies. Finally, we assess the determinants of governance in the case of Spain. The results show a significant relationship between governance and performance, future growth opportunities and size, demonstrating that Spanish firms adopt better standards of governance to compensate for the low level of investor protection holding in the country.

Keywords: Corporate Governance, governance index (GOV-I), Firm Performance, Investor Protection

How to cite this paper: Pérez de Toledo, E. P., & Bocatto, E. (2007). Quality of governance and the construction of governance indices: evidence from Spain [Special issue]. Corporate Ownership & Control, 5(1-4), 355-371. https://doi.org/10.22495/cocv5i1c4p4